Did you know that you can rent out your home for up to 14 days per year without needing to report the rental income on your individual tax return? Section 280A(g), more commonly known as the Augusta Rule, applies to any taxpayer who owns a home in the United States as long as your home is not your primary place of business.
As the story goes, the residents of Augusta, GA wanted to rent out their homes for 2 weeks during the annual Master’s Tournament without becoming full rental businesses. Generally, taxpayers must report and pay taxes on all rental income, so residents of Augusta lobbied for this exemption which eventually became Section 280A(g) of the Internal Revenue Code.
According to Section 280A(g), if a dwelling unit is used during the taxable year by the taxpayer as a residence and such a dwelling unit is actually rented for less than 15 days during the taxable year, then the income derived from such use for the taxable year shall not be included in the gross income.
Like with all tax laws, there are specific conditions that need to be met:
- To qualify for the exemption, the taxpayer must be renting out a dwelling unit that they use as a personal residence.
- The exemption applies to a homeowner’s primary homes, secondary homes, and vacation homes.
- You are not able to deduct expenses related to the rental of the properties.
- The 14 day restriction is cumulative and doesn’t need to be consecutive days. However, if you rent out a residence for a 15th day (or more), taxes will be due for all the days.
- The rental price must be reasonable for that location and that date. So, increased demand due to local entertainment events, sporting events, etc. can increase the amount your residence can be rented for. There are no income restrictions.
The Augusta Rule can benefit almost all taxpayers, regardless of filing status or income level. When done correctly, a small business owner could rent their home to themselves and receive both a tax deduction for the business and an exclusion from income tax on their personal taxes. The income isn’t subject to federal income taxes, but your state or local government may have a tax, so make sure to consult with your tax preparer. You don’t need to do anything special when filing your tax return, you simply do not report the rental revenue to the IRS. You will want to keep detailed records of your rentals, in case the IRS has questions.